Analyzing Walmart Inc.'s (WMT) Progress in a Post-Pandemic Era and Amid Shifting Economic Dynamics

Posted on by The INO.com Team

In our posts on May 25 and June 14, when we discussed how inflationary pressures and online retail is altering brick-and-mortar stores in today’s economy and resulting in widespread store closures, we found budget retailers, such as Walmart Inc. (WMT)to be relatively immune to the seismic shifts in the consumption ecosystem.

However, on May 18, it was disclosed that the big box retailer would be closing 21 stores in 12 states and DC this year , with four stores in Chicago being the latest to join the list owing to poor financial performance being cited by the company.

These closures would extend the trend of WMT closing a handful of stores across various states each year, with the company saying that the stores are "underperforming" without specifics.

Such developments could understandably dampen investor sentiments and confidence and even trigger panic regarding the retailer's financial health. However, counterintuitively, in its earnings release for the first quarter of the fiscal year 2024, the big-box retailer surpassed expectations for both earnings and revenue, with sales rising by nearly 8%.

Encouraged by the strong performance, WMT also raised its full-year guidance. It anticipates consolidated net sales to rise about 3.5% in the fiscal year. It expects adjusted earnings per share for the full year will be between $6.10 and $6.20.
However, it does not mean that the retailing giant has been completely immune to the bite of inflation. In fact, like a double-edged sword, it has cut both ways.

As we have discussed in a previous article, on the one hand, WMT has attracted new and more frequent shoppers, including younger and wealthier customers, who are turning to Walmart for both convenience and value.

However, on the other hand, as inflation factors into Americans’ spending decisions, the shift back to services is taking a bite out of sales of goods, particularly after a pandemic-fueled spending boom.

Moreover, spending trends weakened as the quarter continued, with the sharpest drop after February. Chief Financial Officer John David Rainey attributed that, in part, to the end of pandemic-related emergency funding from the Supplemental Nutrition Assistance Program and a decline in tax refund amounts.

Consequently, consumers have been buying fewer discretionary items, such as electronics and home appliances, and trading for lower-priced items. WMT’s sales have also reflected the shift toward groceries and essentials, with the former accounting for nearly 60% of the annual U.S. sales for the nation’s largest grocer.

In fact, WMT’s grocery business helped to offset weaker sales of clothing and electronics, as sales of general merchandise in the U.S. declined mid-single-digits, while sales of food and consumables increased low double-digits.

Another bright spot for the retail giant has been growth in online sales, which jumped 27% and 19% year-over-year for Walmart U.S. and Sam’s Club, respectively. According to Rainey, curbside pickup and home delivery of online purchases fueled the growth.
However, the increase in volumes online and overall came at the cost of a year-over-year decline in the company’s first-quarter gross margin rate since food has slimmer margins than other merchandise.

In order to protect and preferably increase its margins, WMT has been doubling down on initiatives to increase the efficiency of its operations.
As digital transactions now constitute about 13% and growing of its total annual sales in the U.S., WMT is cutting costs by reducing packaging.
On June 1, in its push for greater sustainability and lesser waste generation, the company introduced new packaging by using paper mailers and technology that makes custom-fit cardboard boxes.

WMT will add made-to-fit technology in about half of its fulfillment centers and for customers at all of its stores by the end of the year. Moreover, the nation’s largest retailer will also allow customers to skip plastic bags when retrieving curbside pickup orders.

While, at scale, the company’s switch to paper mailers is expected to eliminate more than 2,000 tons of plastic from circulation in the U.S. by the end of January, the sustainability push can come with cost benefits.

For example, with made-to-fit packaging, each box requires less material and plastic air pillows that cushion an item— making truckloads more efficient. The box changes also reduce labor for workers who previously made and taped the containers by hand. As a result, the company can realize significant savings in energy and workforce costs.

In its push for greater efficiency, WMT has also been leveraging Artificial Intelligence (AI) and Machine Learning (ML) by deploying them to improve both the customer and employee experience by figuring out what the customer wants and how best to get it.

For instance, one autonomous floor scrubber travels around in each store, keeping floors clean and free of debris while capturing, in real-time, images of more than 20 million photos of everything on the shelves daily with inventory intelligence towers.

WMT has trained its algorithms to discern the different brands and their inventory positions, taking into account how much light there is or how deep the shelf is, with more than 95% accuracy. Therefore, when a product gets to a pre-determined level, the stock room is automatically alerted so that the item is always available.

According to Anshu Bhardwaj, senior vice president of tech strategy and commercialization at WMT, employee productivity has increased by 15% since deploying this AI last year.

Moreover, for years, WMT has also been leveraging the vast amount of data generated by its ever-increasing online traffic to optimize its shopping app with the help of AI.

Given the optimization levels the retail giant is achieving in its internal processes through the proactive deployment of technology, it’s unsurprising that it is laying off hundreds of employees at e-commerce facilities nationwide.

WMT has confirmed eliminating hundreds of jobs at five fulfillment centers in Pedricktown, New Jersey; Fort Worth, Texas; Chino, California; Davenport, Florida; and Bethlehem, Pennsylvania.

Bottomline

In order to immunize itself from the risk of getting disrupted, the country’s largest retailer has embraced what Joseph Schumpeter has aptly described as creative destruction.

While it could mean continual realignment for its workforce, WMT shows promise as an investable and future-ready business.

5 Best Performing Leisure Stocks to Buy in 2023 Summer

Posted on by The INO.com Team

With the pandemic well and truly in the rearview mirror, for most Americans, the onset of summer can only mean one thing: increased consumption. However, e-commerce, albeit with a few hiccups in the supply chain, was able to satiate the appetite for goods through the pandemic.
Hence, Americans are now going above and beyond to compensate for the years spent indoors trying to substitute real experiences with virtual ones. Think camping, cookouts, pool parties, and weekend trips.

Consumers are ever keener to redeem their airline miles on other travel rewards on their credit cards for new experiences through revenge travel.
Consequently, airlines, such as American Airlines Group Inc. (AAL) , have turned to bigger airplanes, even on shorter routes, to help ease airport congestion and find their way around pilot shortages, while Ed Bastion, CEO of Delta Air Lines, Inc. (DAL) revealed, “We’ve had the 20 largest cash sales days in our history all occur this year.”

Moreover, as the consumer price index only grew by 4% year-over-year, which is the slowest in 2 years, a pause in interest-rate hikes by the Federal Reserve could add further momentum to the jump of 0.8% in spending in April.

The increased demand for, and consequently expenditure on, services and experiences are also evident in the recent employment data, with leisure and hospitality adding 208,000 positions out of the expectation-beating private sector employment increase of 278,000 for the month of May. The sector was also a notable contributor to the increase of 339,000 in non-farm payrolls for the month.

Given the above, leisure stocks could be smart investments to capitalize on the increased levels of outdoor activity. Here are a few stocks in the realm of traveling or recreational activities that stand to gain during the summer.

The Walt Disney Company (DIS)

While the global entertainment giant has recently been in the news for its ongoing feud with Gov. Ron DeSantis, outside the political and legal arena, DIS is going through a significant transition under the leadership of its returned CEO, Robert A. Iger.
In addition to the Disney Entertainment and the ESPN divisions, the rest of DIS’ businesses will be organized under the existing parks, experiences, and products division.

As a result, DIS reported significant growth at its theme parks during the fiscal second quarter, which saw a 17% increase in revenue to $7.7 billion, with around $5.5 billion contributed by theme-park locations. Moreover, its cruise business also saw an increase in passenger cruise days as guests spent more time and money visiting its parks, hotels, and cruises domestically and internationally during the quarter.

Marriott International (MAR)

Under various brand names, such as JW Marriott, The Ritz-Carlton, and St. Regis, MAR operates, franchises, and licenses hotel, residential, timeshare, and other lodging properties through two geographical segments: U.S. & Canada and International.

Over the past three years, MAR’s revenue has grown at a 10.6% CAGR. During the same time horizon, the company’s EBITDA and net income have grown at 22.2% and 43.4% CAGRs, respectively.

On June 5, MAR announced its plans to further expand in the affordable midscale lodging segment, following its recent entry into the segment with City Express by Marriott in Latin America.

While the soon-to-be-launched brand has not yet been named, it is currently being referred to as Project MidX Studios. The affordable midscale extended stay brand is intended to deliver reasonably priced modern comfort for guests seeking longer stay accommodations in the U.S. & Canada.

Pool Corporation (POOL)

POOL is a wholesale distributor of swimming pool supplies, equipment, and related leisure products. The company also distributes irrigation and landscape products in the United States.

Over the past three years, POOL’s revenue has grown at a 22.1% CAGR. During the same time horizon, the company’s EBITDA and net income have grown at 37.5% and 37.2% CAGRs, respectively.

On May 4, POOL announced an increase in its share repurchase program to a total authorization of $600 million, along with a 10% increase in the quarterly cash dividend to $1.10 per share.

Acushnet Holdings Corp. (GOLF)

The Fairhaven, Massachusetts-headquartered company designs, develops, manufactures, and distributes golf products. It operates through four segments: Titleist golf balls; Titleist golf clubs; Titleist golf gear; and FootJoy golf wear.

Over the past three years, GOLF’s revenue increased at a 12.4% CAGR, while its EBITDA grew at 18% CAGR. During the same time horizon, the company’s net income has also grown at a 30.6% CAGR.

On February 7, GOLF announced the acquisition of the Club Glove brand, including trademarks, domains, and products, from West Coast Trends, Inc. Founded in 1990, Club Glove is the preferred choice by the overwhelming majority of PGA Tour, LPGA Tour, and PGA Club Professionals, and its patented travel gear has long been recognized among the industry’s most innovative and reliable products.

During the fiscal first quarter that ended March 31, 2023, GOLF’s net sales increased by 13.2% year-over-year to $686.3 million. During the same period, the company’s adjusted EBITDA increased by 22.3% year-over-year to $146.8 million, while the net income attributable to it grew by 15.2% year-over-year to come in at $93.3 million.

Johnson Outdoors Inc. (JOUT)

For Americans who find the great outdoors and road trips more akin to their idea of freedom and the spirit of adventure, JOUT manufactures and markets branded seasonal outdoor recreation products used primarily for fishing, diving, paddling, and camping. The company’s segments include Fishing; Camping; Watercraft Recreation; and Diving.

Over the past three years, JOUT’s revenue increased by 11% CAGR, while its total assets have increased by 11.6% CAGR during the same time horizon.

Due to an improved supply chain situation and increased travel, during the second quarter of the fiscal that ended March 31, JOUT’s net sales increased by 7% year-over-year to $202.1 million. During the same period, the company’s net income came in at $14.9 million, compared to $9.9 million during the previous-year quarter.

Turning Disaster Into Gains: 3 Stocks Stand to Benefit From ‘Cannibalistic' Cricket Infestation

Posted on by The INO.com Team

Residents of Elko and other towns in Nevada are being compelled to relive their lockdown memories. However, it’s not a virus that’s keeping them indoors this time. It's Mormon crickets that are forcing residents to lock them in.

Quiet neighborhoods in Nevada have been infested by ‘biblical’ swarms of crickets. Swarms of these flightless insects, numbering in thousands, are creeping everywhere and disrupting people’s lives. The invasion has not spared fields, streets, houses, or hospitals.

Steve Burrows of Northeastern Nevada Regional Hospital recounts, “It got to the point where just to get patients into the hospital, we had people out there with leaf blowers, with brooms, and …… even a tractor with a snow plow on it to push the piles of crickets and keep them moving on their way.”
According to Jeff Knight, an entomologist for the Nevada Department of Agriculture, for reasons that are yet to be determined, the crickets have a four to six-year cycle, after which they disappear for a while. However, the dormant period for Elko ended in 2019.

While Knight added that the insects are in their migratory phase and can move up to a mile a day, the swarm can't move on fast enough for the overwhelmed residents who have been dealing with the infestation for weeks.

With local vegetation and ecosystem under threat and the trail of grossness being left behind by the insects getting crushed by tires, there is a pesticide solution for those unwilling to tolerate the unenviable sights, sounds, and (of course) smells any longer. This could be a seasonal tailwind for the stocks mentioned below, as they all deal with pest control/chemicals for pests.

Corteva, Inc. (CTVA) is a major American agricultural chemical and seed company. It provides seed and crop protection solutions for the global agriculture industry.

By offering trait technologies that improve resistance to weather, disease, insects, and herbicides used to control weeds, its seed segment is engaged in developing and supplying germplasm and traits that produce optimum farm yields. Its crop protection segment provides herbicides, insecticides, nitrogen stabilizers, pasture, and range management herbicides.

Over the past three years, CTVA’s revenue has grown at a 7.2% CAGR, while its EBITDA has grown at a 13.4% CAGR.

For the first quarter of the fiscal year that ended March 31, 2023, CTVA’s net sales increased by 6% year-over-year to $4.88 billion. During the same period, the company’s operating EBITDA increased by 18% year-over-year to $1.23 billion, while its income from continuing operations increased by 5% year-over-year to $607 million.

As a result, CTVA has increased its guidance for the full-year 2023 and expects its net sales and operating EBITDA to be in the range of $18.6 billion to $18.9 billion and $3.55 billion to $3.75 billion, respectively.

Rollins, Inc. (ROL) provides pest and wildlife control services and protection against termite damage, rodents, and insects to both residential and commercial customers internationally. The company operates through three business lines: Residential; Commercial; and Termite.

Over the past three years, ROL’s revenue increased at a 10% CAGR, while its EBITDA has grown at a 14.2% CAGR. The company’s net income has grown at a 23.7% CAGR during the same time horizon.

During the fiscal first quarter that ended March 31, 2023, ROL’s revenue increased 11.4% year-over-year to $658 million. During the same period, the company’s operating income increased by 20.2% year-over-year to $112.2 million, while its EBITDA increased by 18.4% year-over-year to $139.5 million. As a result, its net income came in at $18.2 million, up 19.6% year-over-year.

In April 2023, ROL acquired FPC Holdings, LLC (Fox Pest Control) for $318 million, excluding $32 million of contingent consideration based upon attaining future growth and profitability levels.

FMC Corporation (FMC) is an agricultural sciences company headquartered in Philadelphia, Pennsylvania, which originated as an insecticide producer. It develops, markets, and sells all three crop protection chemicals (insecticides, herbicides, and fungicides) as well as biologicals, crop nutrition, and seed treatment products, grouped as plant health.

Over the past three years, FMC’s revenue increased at a 7.5% CAGR, while its EBITDA has grown at a 4.6% CAGR. The company’s net income has grown at a 15.7% CAGR during the same time horizon.

During the first quarter of the fiscal year 2023, FMC revenue increased by 4% organically, while its adjusted EBITDA increased by 2% year-over-year. Moreover, the company returned approximately $100 million to shareholders, including $25 million in share repurchases.

For the full-year 2023, FMC raised its adjusted EBITDA outlook to a range of $1.50 to $1.56 billion, reflecting 9 percent growth at the midpoint versus 2022.

4 Stocks Expected to Have the Fastest Growing Jobs in the Next 5 Years

Posted on by The INO.com Team

An apocryphal quote attributed to Charles Darwin observes that it is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.

Regardless of what the ideas and constructs that have shaped and perpetuated our civilization would want us to believe, there is hardly an aspect of our modern life that is immune to or exempted from the laws of nature. At least (and hopefully at most) metaphorically, we are either running for food or running from being food often without being able to tell the difference.

Consequently, in an era of ever-increasing automation, digitization, and decarbonization, individuals and institutions more prepared to accept and embrace change would thrive in the intraspecific struggle for economic existence at the expense of their more inertial peers.

According to the Future of Jobs Report 2023 by the World Economic Forum, in the next five years, almost a quarter of jobs (23%) are expected to change through growth of 10.2% and a decline of 12.3%. Employers anticipate 69 million new jobs to be created and 83 million eliminated, amounting to a net decrease of 14 million jobs, or 2% of current employment.

According to Moody’s Chief Economist, Mark Zandi, the macro trends driving the change present challenges, such as the displacement of the majority of the existing workforce while demanding significant adaptations from the talent that is being retained and disrupting business by lowering entry barriers and switching costs to creating a level playing field.

However, on the flip side, he also highlights the enormous opportunity for improvements in productivity and efficiency, which would be instrumental in ensuring economic growth while managing a general demographic decline.

With specialization, digitization, and sustainability driving demand for talent and reshaping the global world of work at an unprecedented rate, white-collar generic and repetitive jobs are being automated away. At the same time, businesses can’t find enough specialists to design and implement artificial intelligence-led automation and blue-collar workers to take care of work that is yet to be automated.

Consequently, autonomous and electric vehicle specialists top the list of fastest-growing jobs in 2023. Close behind, AI and machine learning specialists could see only slightly less job growth, followed by environmental protection professionals.

Among the non-technological roles, heavy truck and bus drivers, vocational education teachers, and mechanics and machinery repairers look set to see around 2 million new jobs each between 2023-2027.

At the other end of the spectrum, roles like bank tellers, cashiers, and data-entry clerks would be rendered obsolete and, hence, are set to witness the fastest rate of decline in the next five years.

In the context of this fundamental shift, the following businesses which have opted to disrupt themselves and their respective industries rather than being disrupted appear best placed to keep attracting talent in the foreseeable future.

NVIDIA Corporation (NVDA) recently made headlines when its stock got its moonshot due to the widespread public interest in AI. Post its earnings release on May 24; the Santa Clara-based graphics chip maker has stolen the thunder by becoming the first semiconductor company to hit a valuation of $1 trillion.
NVDA’s A100 chips, which are powering LLMs like ChatGPT, have become indispensable for Silicon Valley tech giants. To put things into context, the supercomputer behind OpenAI’s ChatGPT needed 10,000 of Nvidia’s famous chips. With each chip costing $10,000, a single algorithm that’s fast becoming ubiquitous is powered by semiconductors worth $100 million.

During a commencement speech on May 26 at National Taiwan University, NVDA CEO Jensen Huang’s message to his potential recruits was loud and clear, “You are at the beginning, at the starting line, of AI. Run. Don’t walk.”

Tesla, Inc. (TSLA)

The global e-mobility pioneer’s automotive segment includes the design, development, manufacturing, sales, and leasing of electric vehicles as well as sales of automotive regulatory credits.

In the recent earnings call, TSLA’s maverick CEO Elon Musk signaled that the automaker will target larger volumes of sales versus higher margins but said he expects the company “over time will be able to generate significant profit through autonomy.”

The company recently scored a major victory as an infrastructure provider by striking a deal with two of its rival automotive manufacturers, Ford Motor Company (F) and General Motors Company (GM) , to grant their vehicles access to more than 12,000 Tesla Superchargers across the U.S. and Canada starting early next year.

Moreover, since TSLA’s energy generation and storage segment includes the design, manufacture, installation, sales, and leasing of solar energy generation and energy storage products such as the Solar Roof and Powerwall, the stock could also be an energy transition play.

AGCO Corporation (AGCO) manufactures and distributes agricultural equipment and related replacement parts worldwide. The company provides telemetry-based fleet management tools, including remote monitoring and diagnostics, which help farmers improve uptime, machine and yield optimization, mixed fleet optimization, and decision support.

AGCO’s Precision Planting, Headsight, and Intelligent Ag Solutions brands provide retrofit solutions to upgrade farmers’ existing equipment to improve their planting, liquid application, and harvest operations.

On May 4, AGCO announced a capital improvement project, dubbed “Planter Accelerate,” scheduled to begin in the second quarter of this year and continue through the first quarter of 2024. The project aims to increase production capacities for Massey Ferguson and Fendt Momentum planters at its Kansas facilities in Beloit and Cawker City.

Canadian Solar Inc. (CSIQ) is a designer, developer, manufacturer, and seller of solar ingots, wafers, cells, modules, and other solar power and battery storage products internationally. The company, headquartered in Guelph, Ontario, operates through two segments: Canadian Solar Inc. (CSI) Solar and Global Energy.

On June 15, marking its first foray in the United States, CSIQ announced establishing a solar PV module production facility in Mesquite, Texas, with an annual output of 5 GW, equivalent to approximately 20,000 high-power modules per day. This follows the company’s successful track record of production in Canada, China, Brazil, Thailand, and Vietnam.

The new facility, expected to commence production around the end of 2023, represents an investment of over $250 million and will create approximately 1,500 skilled jobs once fully ramped up.

Is Meta Platforms (META) a Buy with Plans for New App to Rival Twitter?

Posted on by The INO.com Team

On October 27, 2022, Elon Musk completed his purchase of Twitter, Inc. Before everyone could let that sink in (figuratively as well as literally), the maverick entrepreneur implemented sweeping changes at the social networking company. In addition to slashing its headcount significantly, it also leaned on automation to moderate content.

While Mr. Musk claims that it has gained users after the change of ownership and management as an advertising-reliant business, Twitter’s troubles are far from over. It has witnessed an exodus of advertisers that was triggered by concerns, including the deterioration of moderation standards at the platform and a botched relaunch of Twitter’s subscription service, which led to a slew of verified impersonator accounts.

On March 10, Facebook-parent Meta Platforms, Inc. (META) announced its plans for a new decentralized, text-based social network. The stand-alone app, codenamed P92, is being built with the expectation of some of Twitter’s disenchanted users looking for alternatives after overhauling the microblogging site.

On June 9, META’s Chief Product Officer Chris Cox said the app aimed for “safety, ease of use, reliability” and giving creators a “stable place to build and grow their audiences.”

Given that public figures reportedly want a similar platform that is “sanely run,” Cox added that META was in discussion with Oprah Winfrey, who has more than 42 million followers on Twitter, and the Dalai Lama, who has nearly 19 million, to be potential users.

The project is being helmed by Adam Mosseri, head of Instagram, META's image-sharing app. The coding began in January, and although no date was given, there is some speculation that it could be released as early as the end of June.

From the screenshots that were shared internally and have since appeared online, the app's layout bore a resemblance to Twitter. However, it would enable users to log in using their Instagram credentials and could allow users to follow accounts they already follow on Instagram.

By relying on a protocol called ActivityPub, which enables interoperability between social networks, META is also exploring integrations allowing users to bring followers from their accounts with existing social networks like Twitter or Mastodon. This could bring down switching costs and encourage adoption.

How the Market Reacted?

META has been finding many takers on the Street in what, according to it, is its Year of Efficiency. In this context, its initiative to take on its more accomplished microblogging peer has been welcomed by investors.

Since the announcement of P92 on March 10, META’s stock has gained around 57% compared to the 14.6% gain of the S&P 500.

The Jury Is Still Out

Decentralization and interoperability are double-edged swords. While META hopes to gain adoption by lowering the entry barriers for users of other networks, in theory, this could also allow users of its new app to take their accounts and followers to apps supported by ActivityPub, such as Mastodon.\

Secondly, excluding its flagship social-networking app, META’s attempts at organic growth have a track record of flops, including the very name of the company and the purpose behind adopting the new nomenclature. Previous attempts at cloning, such as Lasso, which was supposed to offer an alternative to TikTok, have also failed.

Lastly, decentralized social networks, such as Mastodon or Jack Dorsey-backed Bluesky, rely on individual servers that use a uniform protocol, avoiding centralized content control and possible censorship.

Hence it remains to be seen if and how META, which is driven primarily by advertisement revenue, can productively marry decentralization with ownership while respecting the privacy of its users.